Deals: Mentor-Solido, Marvell-Cavium

Marvell today signed a definitive agreement to buy Cavium for roughly $6 billion, ending weeks of speculation about whether the deal would go through. And Mentor, a Siemens business, paid an undisclosed price to buy Solido Design Automation, which tracks variation in complex designs.

Both deals are part of a new flurry of M&A activity across the semiconductor industry as the industry retools for new markets such as machine learning and artificial intelligence, automotive electrification, industrial IoT, medical electronics, as well as much greater processing power at the edge of networks and in the cloud.

The Cavium deal fits squarely on the cloud side and gives Marvell a much wider reach into enterprise networking and infrastructure, as well as some developing markets. The deal, if approved, would boost Marvell’s annual revenue to about $3.4 billion.

Marvell develops technology for a variety of markets, particularly storage controllers and enterprise networking equipment. It is in the process of extending that technology into the automotive segment for autonomous vehicles, where huge amounts of data will be need to be processed, moved and stored, and it has created a chiplet type of approach with its MoChi architecture that allows for rapid assembly of customized solutions.

Cavium, meanwhile, develops processors to connect servers and switches inside of data centers, and it has aligned with ARM to challenge Intel in the server space. But Cavium has been struggling for some time to gain footing in these markets while Intel has barely budged. Cavium’s revenue increased from $373.0 million in in 2014 to $603.3 million in 2016, yet its net income was in the negative column all three of those years and accelerating in the wrong direction. The company reported a $15.3 million loss in 2014, and a $147.2 million loss in 2016. Cost of sales and research escalated over that period, according to financial filings. Cavium has a market cap of $5.76 billion, despite those losses, an indication that its technology is solid, but it has not been able to turn that into a profitable business.

Marvell’s economic profile is much healthier. Total revenue increased from $1.97 billion in 2014 to $2.91 billion in 2016, while net income rose from $153 million in 2014 to $377 million in 2016. Marvell’s market cap is $6.6 billion, making the combined company worth more than $12 billion.

Marvell will pay $40 per share and 2.1757 of its common shares for each Cavium share, giving Cavium shareholders 25% of the combined company. Marvell also will fund the acquisition with cash and $1.75 billion in debt, using an $850 bridge loan and a $900 million term loan from Goldman Sachs and BofA’s Merrill Lynch. The deal is expected to close mid-2018 if approved by regulators and shareholders.

“This is an exciting combination of two very complementary companies that together equal more than the sum of their parts,” Matt Murphy, Marvell’s president and CEO, said in a statement. “This combination expands and diversifies our revenue base and end markets, and enables us to deliver a broader set of differentiated solutions to our customers. [Cavium CEO] Syed Ali has built an outstanding company, and I’m excited that he is joining the board. I’m equally excited that Cavium’s co-founder Raghib Hussain and vice president of IC engineering Anil Jain will also join my senior leadership team. Together, we all will be able to deliver immediate and long-term value to our customers, employees and shareholders.”

The Mentor-Solido deal, meanwhile, extends the reach of Mentor and its parent company, Siemens, deeper into design, verification and manufacturing with a focus on variation.

“There are two things that Solido brings to the table — analytics for statistical analysis and simulation, and machine learning for very large data sets,” said Ravi Subramanian, vice president and general manager of Mentor’s IC Verification Solutions Division. “There are huge quantities of data. People are designing new chips using non-von Neumann architectures with custom I/Os. This will expand the application of this technology.”

Solido’s focus on variation-aware design is aimed at advanced nodes and in markets such as automotive, where reliability and manufacturability are critical. “By integrating machine learning technology, we can decrease the amount of compute time for simulation” said Amit Gupta, president and CEO of Solido. “The first step-function jump was finFETs at 16/14 and now at 10/7. The big issue there was low-power variance from the supply voltage. To verify a design with a high number of sigmas would require a huge amount of verification if you try to use brute force. The only way to reduce that would be to cut corners, which is risky. But with machine learning capability, you only need to verify a fraction of that. We have applied that with highly accurate results.”

Solido opened its doors in 2005. The company has been working closely with Mentor for the past five years. Terms of the deal were not made public, but Mentor’s Subramanian said the most recent talks began in earnest two months ago.

While these deals are noteworthy, they represent a small fraction of the M&A activity in recent months. The highest-profile acquisitions involve Broadcom’s $103 billion bid for Qualcomm earlier this month, and Qualcomm’s $47 billion bid in Oct. 2016 to buy NXP, which has been stalled in regulatory reviews. There have been many more smaller acquisitions, as well, such as ARM’s acquisition of security firms ChaoLogix and Simulity, and ARM’s acquisition of Mistbase and NextG-Com in February for NB-IoT low-power networking. Synopsys, meanwhile, acquired Sidense for OTP NVM last month, and Black Duck Software, which focuses on securing open-source software. In September, Synopsys bought QuantumWise for atomic-scale modeling, and early this year it bought Forcheck, to detect anomalies in code. And earlier this month, Cadence purchased nusemi, which makes SerDes IP.